An analysis of factors that influence the technical efficiency of Malaysian thermal power plants

The main objectives of this paper are to measure the technical efficiency levels of Malaysian thermal power plants and to investigate the degree to which various factors influence efficiency levels in these plants. Stochastic frontier analysis (SFA) methods are applied to plant-level data over an eight year period from 1998 to 2005. This is the first comprehensive analysis (to our knowledge) of technical efficiency in the Malaysian electricity generation industry using parametric method. Our empirical results indicate that ownership, plant size and fuel type have a significant influence on technical efficiency levels. We find that publicly-owned power plants obtain average technical efficiencies of 0.68, which is lower than privately-owned power plants, which achieve average technical efficiencies of 0.88. We also observe that larger power plants with more capacity and gas-fired power plants tend to be more technically efficient than other power plants. Finally, we find that plant age and peaking plant type have no statistically significant influence on the technical efficiencies of Malaysian thermal power plants.

► We examine the technical efficiency (TE) levels of Malaysian thermal power plants. ► We also investigate the degree to which various factors influence efficiency levels in these plants. ► Stochastic frontier analysis methods are used. ► Average plant would have to increase their TE level by 21% to reach the efficient frontier. ► Ownership, plant size and fuel type have a significant influence on the TE levels.